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How Predictable Are Black Swans? The Black Swan Hunters

InvestorEducation / Forecasts & Technical Analysis Jan 21, 2010 - 12:28 PM GMT

By: Eduardo_Moreno


Best Financial Markets Analysis ArticleWe invest using the scientific method and tools such as convergent evolution and comparative economic history in order to try to predict black swans. Here is our story:

1-The black swan.

The Black Swan (Cygnus atratus) is a large aquatic bird which breeds mainly in the southeast and southwest regions of Australia.
But the term black swan has also come to mean a highly improbable event with three main characteristics: 1- It is unpredictable. 2- It carries a massive impact. 3- After the fact we concoct an explanation that makes it appear more predictable than it was. Black Swan Events were described by Nassim Nicholas Taleb in his 2007 book, The Black Swan. Use of the term a black swan derives from the 17th-century European presumption that 'all swans must be white', because all three european species of swans (the whooper swan (Cygnus cygnus), the mute swan (Cygnus olor), and Bewick's Swan, Cygnus bewickii ) had white feathers. In that context, a black swan was something that was impossible, and could not exist.

However, after the discovery of black swans in Western Australia during the 18th century, the term metamorphosed to connote that a perceived impossibility may later be found to exist. But are really black swans so unpredictable or could an informed observer predict them? In other words, is there anything intrinsic in black swans that make them unpredictable, as Taleb argues, or is it just our lack of relevant information what leads to their unpredictability?

2- Black Swans are predictable.

To make the point, lets take the Black Swan (the bird) and tell a little story about its predictability. What I am trying to tell by this story, is that black swans (all of them, not only the birds) may be more predictable than the current wave of obscurantism promoted by the Nassim Nicholas Talebs of the world wants us to believe. It therefore goes beyond ornithological talk. I will argue that science starts to have tools to predict the future, not only in highly repetitive systems like astronomy, the cicles of the moon or a solar eclipse, but also in systems that seemed more unpredictable just a few years ago, like evolution or economy. For example evolution of Black Swans. Could one search for the information that would lead to the correct prediction of black swans? What does it take for an individual to become a black swan hunter? What type of information is it needed to hunt for black swans?

Obviously, because black swans are events that have not yet taken place, one needs to be able to predict the future. In the case of the Black Swan (the birds) one should be able to predict the evolution of the species. However, most evolutionary scientists assume that the outcomes of evolution are random, trends are little more than drunkard´s walks and most evolutionary products are masterpieces of improvisation. However I will argue, together with Cambridge´s researcher Simon Conway Morris, that evolution is much more predictable than generally assumed. And not only evolution, but the world is also much more predictable than generally assumed. So, as said above, lets start the story of Black Swan predictability and go back to 16th-century Spain. All swans described until now are white, but the explorers have just brought to the King and the Queen of Spain a very different type of swan found in what constitutes modern Chile.

Everybody is puzzled. Have a look at it:

It is the black necked swan, Cygnus melancoryphus. A handful of people, those at the right place at right time, should be by now aware of at least two main points: 1- Some swan feathers can be black. 2- Not all swans are completely white. This should of course raise doubts about the impossibility of black swans. It is a hint that appeared more than hundred years before the discovery of black swans by europeans. But things get even better. The degree of predictability becomes huge thanks to the phenomenon known as convergent evolution. I will next argue that convergent evolution helps to predict the future. 3-What is convergent evolution?

Convergent evolution describes the acquisition of the same biological trait in unrelated animals. For example, birds have thousands of genes. Many genes are involved in pigmentation of the feathers. But one called MC1R plays a crucial role in controlling the type of pigment synthesized by animals, including humans. In particular, high activity of MC1R leads to synthesis of black pigments, whereas medium activity leads to the synthesis of red pigments and lack of activity leads to total lack of pigmentation (i.e., white). Interestingly, mutations in this gene appear in the Black Swan but not in the white swans. And even more interestingly, similar mutations appear in other black birds like black arctic skuas (Stercorarius parasiticus) or even black rock pocket mice. And a similar case happens with the black necked swan, where the same gene is mutated but in a different position, a position that leads to activation of MC1R and that it is also correlated with black color in chickens, quail and bananaquit. An it is even a mutation associated with rare black jaguars! What am I trying to get to? The fact that variations in the same gene are always involved in the creation of black birds is one proof of the power of convergent evolution and the few choices that the world can take to lead to events such as a Black Swan. It suggests that the world is very constrained and solutions are channeled by those constraints.

Of course, the degree to which constraints affects the predictability of the world is the subject of controversy. In his book Wonderful Life, Stephen Jay Gould argues that if the tape of life were re-wound and played back, life would have taken a very different course. Simon Conway Morris counters this argument, arguing that convergence is a dominant force in evolution, and that because the same environmental and physical constraints act on all life, there is an "optimum plan" which life will inevitably evolve towards, and therefore the outcome will be highly predictable. For example, Black Swans can exist and we can even predict which gene (out of thousands) they will mutate to become black.

4-Black swan hunting investment method.

I side with Simon Conway Morris and extend his argument to economic black swans. As mentioned at beguinning of this article, we have been investing for more than four years using the scientific method and tools such as convergent evolution and comparative economic history in order to try to predict black swans (even before they got the name...). We have had returns of more than 100% per year, having predicted the collapse of the spanish housing bubble, the rise of silver and gold and the problems in Greece and Dubai. Of course, past returns do not guarantee future returns, but we are excited and we plan to continue investing using our method of black swan hunting. We give lectures on black swan hunting.

To contact us, please e-mail:

By Eduardo Moreno-Lampaya

Eduardo Moreno-Lampaya is a private investor, has a PhD in biology and an MBA in administration of technology-based companies.

© 2010 Copyright Eduardo Moreno-Lampaya - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Dov Henis
20 Aug 11, 02:10
Evolution Is Approximately Predictable...

Is Evolution Predictable

Of course it is.

Nearly. Approximation, proportional to extent of included factors.

And AFTER comprehending what evolution is…


Is Evolution Predictable


From DH comment on

Origin And Nature Of Natural Selection

Life is another mass format, a self-replicating mass format.

All mass formats are subject to natural selection.

Natural selection is the delaying conversion of mass to the energy fueling cosmic expansion.

Cosmic expansion is the reconversion of all the Big Bang singularity mass to energy.

Natural Selection Updated 2010, Beyond Historical Concepts:

Natural Selection applies to ALL mass formats. Life, a self-replicating format, is just one of them.

Natural Selection Defined:

Natural selection is E (energy) temporarily constrained in an m (mass) format. Period.

Natural selection is a ubiquitous property of each and every and all cosmic mass, spin array, formats, from the biggest black hole to the smallest physical particle. Mass strives to increase its constrained energy content in attempt to postpone its reconversion to energy and to postpone addition of its constitutional energy to the totality of the cosmic energy that fuels the cosmic expansion going on since Big Bang.

Dov Henis

(comments from 22nd century)

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